Rethinking David vs. Goliath

Over the holidays I read an interesting book titled David and Goliath written by Malcolm Gladwell. It can be had on Amazon for a tiny $16 and is worth every cent. The book pointed out that contrary to popular belief, David actually had the tactical advantage over Goliath in this tale from the Bible. Warriors used slings to great advantage in combat back then and Goliath probably suffered, no kidding, from gigantism. He may have had a medical condition that made him grow into a giant but limited his vision.

David actually had the combat advantage and that’s why he won the battle.

I wrote about a tiny Canadian company named Sanatana Resources in early December. When I wrote about them, their stock was trading at $.035. It continued down as low as $.02 a few days after I wrote as people sold off their losing penny dreadfuls during the regular December carnage. It’s more than doubled since then to $.065 so anyone buying when I wrote about them has done well indeed.

Sanatana has a JV on a series of mining claims they have spent over $9 million on in Ontario. The joint venture was with a company named Augen Gold. In late 2011, Trelawney bought Augen and six months later IAMGold bought Trelawney. IAMGold purchased Trelawney to acquire their Cote Gold project with about 8 million ounces.

The Sanatana JV is entirely surrounded by IAMGold. IAMGold has filed a request for an easement that they claim they need for water diversion, dumps and transmission lines. Since Sanatana has spent over $9 million on the project, they naturally feel the ground is theirs.

On March 11, the Ontario Mining and Lands Commissioner has scheduled a hearing on Sanatana’s motion to dismiss Trelawney’s application. The law is quite specific and basically says that if you want an easement that could hurt an existing claim owner, you have to be specific about how, when and why you intend to use that ground. It is the position of Sanatana that Trelawney has failed this test.

So the hearing takes place in about a week. Sanatana expects a decision from the commissioner in 2-4 weeks. Sanatana’s basis for their motion to dismiss is their contention that the Trelawney application for an easement has failed to be specific. The Ontario mining act does require easements to be absolutely specific and definite about the application’s intentions.

There was a recent case that supports Sanatana’s contentions. Under Section 51 of the Mining Act, a mining claim holder has a prior right to surface use for prospecting and the efficient exploration, development and operation of the mines, minerals and mining rights.

The real issue is pretty simple. IAMGold wants the ground claimed by Sanatana for free. It’s perfectly legal for them to do that and if the tiny junior can’t afford to pay the legal fees, they get it for free. In this case, Sanatana has stuck to their guns. Their position is that if IAMGold wants the ground, and they clearly do, they can pay for it.

And while it’s perfectly legal for a big company to beat up a small company, when the small company prevails the big company gets to pay the costs.

Clearly the Sanatana joint venture ground is necessary to the economic development of the Cote project of IAMGold. Should IAMGold lose the case, it will be both embarrassing and expensive.

The pending hearing is a no-lose opportunity for STA. If they get a favorable ruling on their motion to dismiss, the case is over and they file for their costs to be reimbursed. Even if they don’t get a favorable ruling on their motion, they would get a hearing date for a full hearing.

With a market cap today of about $8 million Sanatana is back in the driver’s seat. The very best IAMGold could hope for was that they run out of money and go away. With a hearing in a week that could be a public relations disaster, the top brass at IAMGold have to be thinking about how many zeros to put on that check made out to Sanatana.

I don’t have a dog in the fight; I hold no financial position in either company. I like IAMGold because of how reasonable they were in dealing with Rio Alto in 2008-2009. They are nice people. But I think they are going to lose. This isn’t rocket science.